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My current 401k performs poorly, and has a very limited selection of funds. I do Roth contributions, with non-Roth employer matching.

My Roth IRA allows me to select funds that perform significantly better. Is it possible to do periodic (perhaps monthly or quarterly) direct rollovers into my Roth IRA? Is there any reason not to do so?

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    There is a reason not to do so: The law. Unless you leave your employer one cannot do a rollover. It is one of the bad things about certain 401Ks. Depending upon the size of your company, you could attempt to change the investment elections offered via your HR department. – Pete B. Aug 8 '16 at 16:15
  • @PeteB. Thanks, I was afraid of something like that. It sounds like I'm basically stuck then - I am unable to influence the fund selections. It's almost to the point where I would be better off forgoing the employer match, and just go straight into the IRA... – Brad Werth Aug 8 '16 at 16:21
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    There's another question about depositing to a 401(k) that has bad (high) fees. The answer is to deposit to the marching level and not a penny more. I'll link later if I can find it. If the match is good, it's still worth it. – JoeTaxpayer Aug 8 '16 at 16:41
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    @BradWerth it happens... I agree with JoeTaxpayer about the match. Talk to HR, and see what hey can do. You never know. – Pete B. Aug 8 '16 at 17:04
  • @PeteB. FWIW, I think you've answered my question very well in the comments. If you are inclined to submit them as an answer, I would be happy to accept it. Thanks! – Brad Werth Aug 8 '16 at 18:09
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There are certain allowable reasons to withdraw money from a 401K. The desire to free your money from a "bad" plan is not one of them.

A rollover is a special type of withdrawal that is only available after one leaves their current employer. So as long as you stay with your current company, you cannot rollover. [Exception: if you are over age 59.5]

One option is to talk to HR, see if they can get a expansion of offerings. You might have some suggestions for mutual funds that you would like to see. The smaller the company the more likely you will have success here. That being said, there is some research to support having few choices. Too many choices intimidates people.

It's quite popular to have "target funds" That is funds that target a certain retirement year. Being that I will be 50 in 2016, I should invest in either a 2030 or 2035 fund. These are a collection of funds that rebalances the investment as they age. The closer one gets to retirement the more goes into bonds and less into stocks.

However, I think such rebalancing is not as smart as the experts say. IMHO is almost always better off heavily invested in equity funds. So this becomes a second option. Invest in a Target fund that is meant for younger people. In my case I would put into a 2060 or even 2065 target.

As JoeTaxpayer pointed out, even in a plan that has high fees and poor choices one is often better off contributing up to the match. Then one would go outside and contribute to an individual ROTH or IRA (income restrictions may apply), then back into the 401K until the desired amount is invested.

You could always move on to a different employer and ask some really good questions about their 401K. Which leads me back to talking with HR. With the current technology shortage, making a few tweaks to the 401K, is a very cheap way to make their employees happy.

If you can score a 1099 contracting gig, you can do a SEP which allows up to a whopping 53K per year. No match but with typically higher pay, sometimes overtime, and a high contribution limit you can easily make up for it.

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    If you can score a 1099 gig, there is also the option to start a DB plan. Depending on age, one can conceivably defer sever $100k per year. – Joseph Zambrano Aug 11 '16 at 1:48
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You need to check with your employer. It is called an in-service rollover and it is up to your employer on whether or not it is allowed. There are a lot of articles on it but I would still talk to a professional before making the decision.

And there are some new laws in place that put at least some responsibility on your employer to provide a 401k with reasonable options and fees. http://www.latimes.com/business/la-fi-court-edison-401k-fees-20150519-story.html

We'll see if it has legs.

  • Do you really think the OP is over 59.5? – Pete B. Aug 8 '16 at 18:51
  • I haven't found any documentation that suggests there is an age requirement for an in-service rollover. – kweinert Aug 10 '16 at 11:54
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My two-cents, read your plan document or Summary Plan Description. The availability of in-service withdrawals will vary by document. Moreover, many plans, especially those compliant with 404(c) of ERISA will allow for individual brokerage accounts. This is common for smaller plans. If so, you can request to direct your own investments in your own account. You will likely have to pay any associated fees.

Resources: work as actuary at a TPA firm

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If the difference in performance is worth it, consider "borrowing" from your 401k to put into the Roth. You pay it back, but you can stretch it out over time, and the interest charged is actually yours, because you borrowed from yourself.

But you can only borrow half of the account and you have to pay it back before you can do another loan.

  • two other minuses: some employers will not allow you to make contributions to the account while you have a loan. Therefore you will not be getting the match; the other is that if you quit or lose the job you have to quickly pay off the loan or pr the balance is considered a distribution. – mhoran_psprep Aug 9 '16 at 10:50
  • @mhoran_psprep: So it won't work for "some employers." But for the others, (1) in my case, I did not have to "quickly pay off the loan"—I could continue the payment agreement, only no longer with payroll deduction. And if I don't, if I had already put the entire amount into the Roth, can I not treat that as a rollover? (I should point out another minus to rollovers: Another time, I arranged for the 401k operator to do a rollover for me. They reported it to IRS as a distribution and refused to correct that.) – WGroleau Aug 9 '16 at 16:23
  • Interesting idea. The loan limit is $50K, so at some point, this isn't too practical. But +1 for the clever idea. – JoeTaxpayer Aug 10 '16 at 18:33
  • Ah, well, my IRA only has $50K and I don't even need that. – WGroleau Aug 10 '16 at 21:37

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